June 2016

06/14/2016

If you don't believe any friends or family members can serve as your executor, what are your options?

A question is raised by a well-to-do husband who is concerned that his wife is not prepared to handle a significant estate if he should predecease her. The couple has no children, and he is concerned about what will happen. In MarketWatch's"My wife and I don't trust anyone to be executor of our will," several different ways to prepare for this situation are examined.

One important note to consider: while mulling over the executor issue, do not table your estate planning. With both spouses still living, the planning should start right away.

Collect the information about important accounts and assets and keep it in a safe place at home or at your bank. Make sure you and your spouse know where these materials are located.

The best route is to have your spouse act as executor of your will with the help of a lawyer upon your death. As an alternative, an estate planning attorney can act as an executor. However, he or she will need to be paid.

The executor is required to act in your best interests. He or she must inventory the assets and coordinate cash for expenses, sales, and dealing with taxes.

There's no problem choosing an attorney you may not know personally, but you should do your research on www.lawyers.com and www.avvo.com. You can also ask friends for recommendations.

There are other, unforeseen issues you should take into account with your estate planning attorney—such as the unlikely event that both spouses pass simultaneously or a surviving spouse does not have mental capacity to handle his or her affairs. In such instance, you need an alternate executor, trustee, and/or power of attorney.

By virtue of having an estate plan in place that includes designating your favorite charitable organizations, you have already solved the biggest problem. Remember that most Americans still do not have a will, which puts you way ahead of your peers.

06/13/2016

Whether on the evening news or a serial drama, we love to watch the inner workings of family businesses—in large part because of the drama and the high likelihood of failure.

The narrative of family dynasties is intriguing. According to the Yakima Herald in "Passing the baton: 6 challenges for family business succession," that is because successfully transitioning from one generation to the next is extraordinarily challenging and statistically unlikely. The low levels of success are matched by high expectations of business owners who believe that somehow, someway, their family will continue to control the businesses. Their viewpoint is highly optimistic and—most often—wrong.

Whether it's a national chain of supermarkets or a mom and pop corner grocery, owners will face several obstacles when seeking to ensure that their business legacy continues with and through their children. Here are some common challenges to consider.

Conflict. Very few—fewer than 25%—of family businesses have done any succession planning. This fuels the potential for disharmony. One of the big reasons not to have a formal succession plan is that it'll cause family conflicts. There are tough decisions to be made—and it's often seems easier to avoid them.

Income. Revenue distribution and work compensation is a potential minefield. When you bring in someone from the next generation to the company, some folks try to combine that person's compensation with their anticipated inheritance. That's no good because it will provide more compensation than is right for the position, creating a family member's inflated sense of worth to the business and angry employees.

Interest and Involvement. An owner with several children may have some offspring who are just not interested in being a part of the family business. Nonetheless, they'll all expect an equal share, which might frustrate those siblings who worked years to make the business successful.

Technology. An owner may be reluctant to accept changes in methods and procedures, resisting new technology they don't understand. But the technological advances that a young generation brings can translate into efficiency and improved profit margins. It's a balance.

Uncertainty. Some business owners postpone succession planning because they think they'll be around for many more years. But illness and death can occur suddenly. With that in mind, the most successful succession plans are typically those that are in place the longest.

Regulation and Taxes. When a business is transferred to a new generation, there can be serious tax consequences. This needs to be part of the plan, especially as an onerous tax burden could force heirs to sell all or part of the business to raise capital to pay the tax bill. That's why business owners need up-to-date estate plans that leverage tax regulations on wealth transfer and gifting.

The only sure thing about passing a business on to the next generation is the difficulty factor. Those who do succeed start planning decades in advance, often calling on outside sources that are trusted and respected by the owners and other family members. Plans need to be reviewed on a regular basis because situations change. The key is communication among family members and getting everyone to keep their eye on the main goal: the continuation of the family business.

06/09/2016

In many cases, the incapacitated person does need the protection of a guardian. But far too often, the guardian is the source of abuse, and the lack of oversight leads to appalling situations.

Celebrity cases where persons appointed as guardians fleece their relatives or sequester them against their wills in nursing homes may get the headlines, but what happens to regular people is one of the quiet shames of our country. Despite many changes in the law, vulnerable people continue to be abused by professionals and family members whose interests are not in the well-being of the person they have been court-appointed to protect.

When a judge imposes legal guardianship or conservatorship, the ward or "incapacitated person" may no longer be allowed to decide where to live or whom he or she will see. If a guardian is appointed, that individual gets to decide whether the ward is allowed spending money. He or she won't be able to enter into contracts, including marriage, or demand a different guardian—even if the guardian is abusing the ward or stealing his or her money.

According to a recent nextavenue.com post, "Guardianship Laws: Improving, But Problems Persist," there were 33 changes in adult guardianship laws in 18 states in 2014. A report by the Commission on Law and Aging of the American Bar Association stated that the changes were on issues like background checks on guardians, access of the ward to visitors and phone calls, health care decision-making by guardians, fees, and rights of people under guardianship.

There are no reliable statistics on exactly how many guardianships there are nationwide. Today, experts believe that there are 1 million to 2 million. Some of the changes in recent years include these requirements:

The would-be "incapacitated person" is notified of the guardianship hearing and the right to be present if desired;

He or she has the right to an attorney;

There must be "clear and convincing" evidence that the person is incapacitated and, in some states, that guardianship is necessary to avoid harm; and

A medical expert must assess the proposed ward.

But many states are resistant to change. One major push in new legislation in the U.S. has been to require judges to grant limited guardianship orders whenever possible, instead of a complete and total termination of the ward's rights. A preference for limited orders is the statutory mandate in almost every state, but there are an excessive number of removals of rights in too many cases. There's a strong push for judicial efficiency against them.

Many advocates think that it's way too simple to get a judge to sign off on a guardianship or conservatorship. The evidence stating that the older adult can't handle his or her own affairs is supposed to be "clear and convincing," but it really may only be one of the following:

a brief letter from a general practitioner who's taking the word of an adult child;

a statement from a doctor who doesn't know the difference between delirium (temporary) and dementia (permanent);

a court petition from a proposed guardian or conservator with a conflict of interest;

a petition from a nursing home that wants a regular, paying client; or

a statement from an adult child who wants to take over the decision-making from a parent instead of determining necessary care.

The court system was never designed to serve as a monitoring agency, and that is where much of the vulnerability lies. State law may require guardians and conservators to maintain records of their activities and file reports with the judge, but few courts possess the resources to be actively engaged in each case. The laws may continue to change, but without the ability to monitor guardians, the potential for abuse continues.

06/07/2016

The double nickel year has potential for allowing you to tap your 401(k) without an early withdrawal penalty, but you have to know exactly how it works to avoid problems.

There's one exception to the rule that you must be at least 59 ½ to tap your 401(k) without incurring a 10% early-withdrawal penalty, but you have to tread carefully. If it is the year you turn 55 or older and you leave your job, there's no penalty. You will still owe tax on the withdrawal—a $10,000 payout at a 25% tax rate will still cost you $2,500. There's no free lunch, even here. But, the good news is you don't get hit with a $1,000 early withdrawal penalty.

It doesn't matter how you separate from service. In fact, retiring, being laid-off or even termination will spare you the penalty. Provided you're 55 by the end of the year you leave the job, the rule applies, says the Kiplinger's article, "When You Can Tap a 401(k) Early With No Penalty."

If you were to leave your job in January and turn 55 in December, the 401(k) payouts anytime during the year are penalty-free. However, if you retire in December and turn 55 the next January, you'd be hit with the penalty until age 59½.

Reaching age 55 or older in the year you leave is the trigger, not just your 55th birthday. So if you were to leave a job at age 50, you couldn't tap that 401(k) penalty-free until you reach age 59½. But if you leave an employer at age 55 to work for another company and then leave the second position at age 57, you could withdraw from both 401(k)s penalty-free. You left both companies in the year you turned 55 or older.

This exception may come in handy for some early retirees who need to use the funds in their 401(k) for living expenses. But remember: this exception from the penalty is lost if you rollover your 401(k) to an IRA. Once the money goes into the IRA, the earliest age for penalty-free withdrawals is back to age 59½.

An IRA, in contrast, has more investment options than a 401(k). One could split the 401(k) for a better result. For example, if you were to retire at 55 with $1 million in your 401(k), and you want to withdraw $50,000 annually for the next five years, you could leave $250,000 in the 401(k) to take advantage of the penalty exception and rollover $750,000 into an IRA to take advantage of other investment choices.

One caveat—and it's a big one: not every retirement plan allows for partial withdrawals or periodic distributions. Make an appointment to sit down with your benefits manager to review all of the specifics for your company's 401(k).

06/03/2016

Everything about the 529 college savings plan is a win, yet Americans aren't taking advantage of this terrific savings vehicle.

College debt is blamed for sinking millennials' dreams of owning a home or getting out from under their parents' roof. It's ironic that one of the best means of saving for a college education is experiencing a slump in awareness among Americans. One study reports that as many as 75% of Americans didn't know about 529 plans in 2015, compared to 66% in 2014. What's behind the decline?

The cost of education is a big concern for many Americans, but there's a downward trend in 529 awareness that persists year after year.

Experts say that a 529 plan is a "no brainer." 529 funds can be used for any qualified educational expenses at any college in the U.S. and many abroad. A 529 savings plan can be passed from one generation to the next. The funds don't expire, so a parent or grandparent can start saving for children that aren't even born yet in a 529 savings plan. Plus, you can use or purchase any 529 savings plan from any state.

But the state in which you purchase your 529 savings plan should be considered carefully. States have different college funding plans.

To get the most back for your 529 plan buck, you need to be creative. Get the whole family involved, like having the grandparents superfund a 529 plan by contributing five years all at once. They can make a five-year election—contributing the maximum allowed for five years all at once—which is a $70,000 contribution. This also helps the grandparent with estate planning by placing their assets in a tax-deferred account for the benefit of their grandchild.

Sallie Mae, a leading college financial services company, suggests this 1-2-3 approach when using 529 plans:

Start a savings account. Use this as your college fund and deposit gifts and take advantage of free services that let you earn cash back to save for college.

Make regular contributions. Set a goal, and create a routine of depositing some money. A small amount will add up over time, and automatic deposits make saving easy.

Consider tax-advantage options. You can use your money to work for you in a dedicated college savings program, such as a Coverdell Education Savings Account, prepaid state college savings plans, or a 529 college savings plan.

It's well known that America has a massive student loan crisis. The 529 is a clear solution.

Intestacy. The negative effect of dying "intestate" or with no estate plan in place is significant. This can be avoided in as little as one meeting with an experienced estate planning attorney. You have the opportunity to make the impossibly hard decisions involved in estate planning for and on behalf of those you leave behind. Think of your will as your advance instructions on how to administer whatever you have left behind. These will be the very instructions to be followed by the person you designate as your personal representative.

Legacy. A will gives you an opportunity to fulfill your responsibilities, even after you have passed away. Your influence over your assets, on businesses and charitable goals, and in the lives of your family and friends, can be extended. In your will, you may designate a trustee to control assets you directed to be held in trust on behalf of those you leave behind.

Family. One of the most important reasons to create a will is for your minor children. In your will you designate those who will take care of your kids in the event both parents die. These folks must be noted as guardians in your will.

Regardless of the size of your estate, a properly prepared and executed will gives your family direction during a difficult time, provides guidance to those who survive you and protects those you love. Speak with an experienced estate planning attorney who can help you create an estate plan that is best suited for you and your family.

06/01/2016

The entire US is up for grabs for retirees who are moving to a wide variety of location—from the mountains of Montana to the moderate temperatures of South Carolina.

Once upon a time, if you lived in the north, your default retirement destination was either Arizona or Florida. Today, retirees are looking for low taxes, nice weather and an active lifestyle. They are finding it in many different locations.

The New York Daily News explains this and more in its article, "Forget Florida and Arizona — today's retirees are branching out all over the U.S." Women continue to live longer than men, but the difference has narrowed as the lifespan of males has grown consistently within recent decades. This means that the chances are better now that a married woman will spend additional time in retirement together with her partner than as a widow. Retirees are taking advantage of this additional time together by heading to new territories.

Wyoming is a destination that’s trendy for retirees seeking good weather, low taxes, soothing hot springs, and a low crime rate. Plus, it provides opportunities for bringing the grandkids out for trips to Yellowstone and Grand Teton National Parks.

In addition, on the opposite side of the country, retirees past the age of 60 are relocating to Columbia, S.C., where they can take free courses at the University of South Carolina. Affordable housing in Columbia costs a retiree an average of $367 per month with a paid-off mortgage. That sounds pretty good, especially with the typical Social Security benefit for retired workers at an average $1,335 per month in 2015. With a well thought-out retirement income strategy, you could have a very comfortable life in the Palmetto State.

Time to enjoy retirement with your spouse is wonderful. So too is the gift of traveling throughout retirement together. Even so, couples should still have a contingency retirement income strategy in place for whichever spouse lives longer.

According to the U.S. Census Department, recently released numbers show that for people age 55 and older, the greatest expense is housing. You need to have a plan to reduce this expense once retired, especially since increased health care expenses are likely as we age.

Today's biggest driver in retirement planning is centered on the impact of a longer life expectancy and the cost of housing. Couples should be realistic about their expectations and consider what kind of lifestyle they expect to enjoy and whether or not that aligns with their financial situation.